Stiglitz' loose talk again

[Brad De Long]

Re:
>
>The IMF doesn't help countries, it helps foreign creditors and
>industrialists and their junior partners in the client countries. So, yeah,
>I'm all for helping the Russians out of the mess they're in - especially
>since it was U.S. (and European) "experts" who helped them get into the
>mess in the first place. Russian "experts" took the neoclassical economic
>theory the read literally, and not as the exquisite mathematical
>fetish-object it really is, and their politicians have been selling off
>Russian assets to foreigners for a mere 20%, um, commission.
>
>Doug

A while ago you told a story about the Manley government in Jamaica
negotiating with the IMF for a structural adjustment loan. If that loan
didn't "help", why did they negotiate for it? Why not simply spurn all
connections with the IMF if all it does is help foreign creditors and
industrialists?

The IMF is a lending institution that gives countries the opportunity to
make the adjustments that international investors demand in a period of
years rather than months--and its bet is that it's a lot better to take
three years to boost exports and shrink imports than it is to have to do it
in a month.

The problem (or one problem) is that the IMF is a *lending* institution:
this means that it believes it has to get its money back to lend out again
in the next financial crisis; this means that the IMF will only lend to you
if it is convinced that you are adopting policies that will generate enough
of an export surplus for the IMF to be repaid.

Paul Krugman ran a currency crises conference for the NBER last February at
which Stanley Fischer said that one of the principal influences on their
thinking at the IMF had been the comparison between Mexico 1982 and Mexico
1995. In the 1982 financial crisis the IMF stood back and did little. It
let the Mexican government default on its loans. It let Mexico and its
creditors sort out which debts were going to be written off and which were
going to be repaid. And it took five years before economic growth resumed
in Mexico. In the 1995 financial crisis the IMF moved in aggressively,
demanding changes in policy to generate an export surplus and lending
enough to prevent any default--and growth in Mexico resumed after a year.

Of course Mexico's biggest trading partner--the U.S.--was growing rapidly,
and so was American demand for Mexican imports, and the U.S. central bank
kept interest rates somewhat lower than it would have otherwise because of
the mexican crisis. By contrast East Asia's biggest trading
partner--Japan--is sinking into a depression. Exports from the rest of East
Asia to Europe and the U.S. are up about 20% over what they were in early
1997, but exports to Japan are down perhaps 20%...